The total budget for FY2014 is Rs 517.2 billion, with Rs 353.4 billion for recurrent expenditures, Rs 85.1 billion for capital expenditures, and Rs 78.7 billion for financial provision. The total budget allocation for FY2014 is 27.8% higher than FY2013 budget allocation and 41.1% higher than the revised estimate of total expenditure in FY2013.

The projected total revenue is Rs 429.5 billion, with 82.5% of it coming from tax revenue, 16.2% from foreign grants, and 1.3% from principal repayment. This leaves the government with Rs 87.7 billion of budget deficit, whose financing would come from foreign loans and domestic borrowing of 49.8% and 50.2%, respectively, of the deficit.

The table below provides income and expenditure snapshot of the FY2014 budget and the FY2013 revised estimate. Due to the lack of timely full budget and the inability to spend allocated money in time along with high revenue mobilization, there was net savings in FY2013.

Recurrent expenditure allocation is really high. It is barely equal to tax revenue target. The growth in FY2014 budget allocation (BE) is 40.7% over FY2013 revised estimate (RE). Rationalization of recurrent expenditures has to be thought of seriously. Grants to local bodies and social service constitute 42% of recurrent expenditure, followed by compensation of employees (25%), use of goods and services (15%), and social security (15%). The allocation for compensation of employees, use of goods and services, grants, and social security increased by 30.4%, 88.3%, 40.6%, and 12.9%, respectively, compared to the revised estimate of respective expenditures in FY2013.

Note: FY2014 nominal GDP at producers’ prices assumed to be 14.7% (average of FY2012 and FY2013) higher than FY2013 provisional data. Revised estimate of revenue in FY2013 is higher than revised estimate of expenditure because of the inability of the government to spend the allocated budget in time, thanks to the lingering political uncertainties and delay in bringing out a timely and full budget.

Capital allocation has remained around 16.5% of budget allocation, but problems always arise during implementation. More challenges would prop up both scale and quality fronts in the run up to the CA elections (and possibly local body elections).

Revenue target is 20% in FY2014, down from 21% between FY2013RE and FY2012. Given the weakening currency and a potential slowdown in imports (due to depreciation, but we will have to see remittances growth to see the net impact), revenue target might be challenging. The existing reforms have to be sustained and its reach expanded to increase tax net and tax base.

Allocation for financial provision has been equal to or higher than capital expenditure. It includes internal loan investment, domestic share investment, and external (borrowing) amortizations and domestic (borrowing) amortization. This probably has direct relationship with the government’s continuous pumping in of money in public enterprises (last year only 2 of the 37 PEs gave dividends and 21 operated in losses) as well as high debt servicing as a result of higher borrowing. The combined loss of NOC and NEA was Rs 19.5 billion (1.27% of GDP in FY2012).

Domestic borrowing is getting larger than external borrowing. Interest on domestic borrowing (except for T-bills) is higher than interest on concessional loans from multilateral banks because the interest rate is usually pre-determined (much higher than market rates) before auction. Higher domestic borrowing might also impact liquidity situation in the banking sector. As a share of estimated FY2014 GDP, planned deficit financing is about 4.5% of GDP (2.2% of GDP foreign loans, and 2.3% of GDP domestic borrowing).

Growth target is ambitious and inflation target is conservative. The recent depreciation of the rupee (except against Indian rupee) might dampen not only revenue mobilization, but also exert pressures on prices as more than 50% weight in CPI index comes from non-food and services, which are mostly imported. Also, market prices will see upward pressures coming from the hike in salary and allowance of public employees. It is mostly going to be ‘push’ factors, complemented by the persistent supply-side constraints.

The blocks refer to the share of functional expenditure in total expenditure (including financing). The numbers (in Rs ‘000) is the amount of budget allocation or expenditure.

The blocks refer to the share of expenditure item in total economic affairs functional expenditure heading. The numbers (in Rs ‘000) is the amount of budget allocation or expenditure.

About

Formerly, economics officer at Asian Development Bank, Nepal Resident Mission. Worked as a researcher at SAWTEE, Kathmandu. Also, worked as a consultant for Ministry of Commerce & Supplies, Government of Nepal; FAO; UNDP, GIZ-CIM, and ADB among others. I was an op-ed columnist for Republica between December 2008 – June 2012. I also worked as a Junior Fellow for Trade, Equity & Development program at Carnegie Endowment for International Peace, Washington, D.C .